Newsweek: Obama’s State of the Union. What to Expect
media mentionThe issue most recently pegged by the White House, and the one least likely to gain any traction in Congress, is reforming the tax code. Obama’s plan would raise taxes on the very wealthy to pay for tax cuts for middle- and low-income families.
It would do this in three ways: First, it would close the so-called stepped-up loophole, commonly known as the trust fund loophole. Under current tax law, assets passed on to heirs when their owners die are taxed on what they were originally worth, not what they were worth at the time of the owner’s death. So, a $1 million investment that appreciates during the owner’s lifetime to $10 million will be treated as $1 million for tax purposes upon the owner’s death; the other $9 million in gains goes untaxed. “Capital gains income is very highly concentrated in the hands of the 1 percent,” says Matt Gardner, executive director of the Institute on Taxation and Economic Policy. “The stepped-up basis loophole is costing us an awful lot of money that isn’t benefiting middle and low-income families at all.”